Social impact bonds launched by government to help poor

Deprivation (file pic) Ministers want to break the cycle of poverty and deprivation in families

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Private investors are being asked to fund a new government drive to help families blighted by crime and poverty.

Ministers want philanthropists, charities and other groups to put cash into "social impact bonds".

It is hoped a trial of the scheme in Westminster and Hammersmith and Fulham in London, as well as Birmingham and Leicestershire, could raise up to £40m.

It aims to help break the cycle of deprivation, without costing the taxpayer any more money.

The government has put the annual bill for assisting the UK's most deprived families at more than £4bn a year, representing an average of nearly £100,000 per family.

They are often affected by multiple issues, such as poor education and drug or alcohol addiction, and ministers are concerned the current focus on treating the problems of individuals creates a costly cycle of deprivation which they find almost impossible to break.

'New partnership'

It is hoped the use of social impact bonds, where investors get paid a return for successful projects, can intensively tackle several problems in a family setting.


  • Philanthropists and social enterprises will be asked to provide advance funding to support schemes commissioned and delivered by public bodies, such as prisons and local councils
  • They would be remunerated by the taxpayer on the basis of the scheme's results, in line with targets agreed in advance
  • The "return on investment" - the amount repaid on top of the initial outlay - could range from 2% to 13% depending on how well the schemes perform
  • Benefactors will get nothing back if targets are missed
  • The first pilot was launched a year ago with four more planned by next Spring

Announcing the trial, expected to be up and running next year, Civil Society Minister Nick Hurd said it would focus on delivering concrete, measurable outcomes.

"We must not be afraid to do things differently to end the pointless cycle of crime and deprivation which wrecks communities and drains state services," he said.

"Social impact bonds could open serious resources to tackle social problems in new and innovative ways."

Mr Hurd went on: "We want to restore a stronger sense of responsibility across our society and to give people working on the front line the power and resource they need to do their jobs properly.

"Social impact bonds could be one of many Big Society innovations that will build the new partnerships between the state, communities, businesses and charities and focus resources where they are needed."

Sir Ronald Cohen, co-founder of Social Finance - a company which helped develop the bonds - said the scheme could "revolutionise" the way UK charities deal with social issues.

Civil Society Minister Nick Hurd: "It will be very rigorously focussed on hard outcomes"

Social impact bonds, based on the theory that early intervention can help stop more serious problems later on, are already being used to tackle reoffending in Peterborough Prison.

An initial evaluation of the scheme, published in May, found there was demand from the voluntary sector for the idea and it had helped to generate new sources of funding. But it also warned that the contractual relationships underpinning the scheme were "complex".

Citing the scheme as an example, Sir Ronald said not-for-profit organisations with expertise in the justice system would be funded through investments rather than grants.

"If they achieve a reduction of more than 7.5% in the rate of reoffending by these prisoners for a period of six to eight years, then the government pays the capital back," he said.

"Below that, the capital is lost, and above that the capital gets a yield of 2.5% to 13%."

'Questions to answer'

For Labour, shadow Cabinet Office minister Tessa Jowell welcomed the thinking behind the initiative but said much more detail was needed on how it would work.

Case study: The cost of crime

In Birmingham, one of the trial areas announced by the government, an investigation uncovered two crime families in the city had cost taxpayers £37m over four decades.

Rival gangs the Burger Bar Boys and the Johnson Crew became notorious after the murders of teenagers Letisha Shakespeare and Charlene Ellis, in 2003.

Members indulged in petty street crime at first, but, as they moved into the city's growing drugs market, gang violence and gun crime flared up, causing misery for many families.

The Be Birmingham group put the cost of investigating a murder or attempted murder at £1.4m.

Since then, Birmingham City Council has been working to tackle the problem, and it hopes social impact bonds will help ensure the next generation is steered away from joining gangs at a young age.

"The devil is in the detail," she said.

"What criteria will be applied to financial backers? How will the government ensure they are serious about tackling these problems long term?

"What indicators will be used to judge the success of these projects and how will the government ensure the payments by results model does not just allow providers to cherry-pick members of the target group who are the easiest to help?"

Prime Minister David Cameron set a target to "turn around" up to 120,000 families with multiple problems by the end of the current parliament, a goal critics have warned could be hard to achieve.

Westminster Council said it welcomed the chance to speak to potential financiers about supporting its family intervention programme.

"The kind of outcomes they would be thinking about would be avoiding public care for children because what we know it is very expensive and we do not always have the best results," Natasha Bishop, the council's head of family recovery, said.

"They would also be looking at getting children who have been out of school back into school, pushing up attainment and children not becoming young offenders or reducing their offending."


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